Cheque Bouncing: New Precedent

40 lakh cases in India have to do with bounced cheques – making it one of the most litigious matters in the country. Which is why in April this year the Supreme Court laid down specific guidelines for all magisterial courts to speedily dispose of cheque bouncing cases. But that good work may soon be undone. Another Supreme Court decision has overturned the existing precedent on where a cheque bounce case can be filed. In doing so, has the apex court swung the pendulum in favor of the defaulting party? Payaswini Upadhyay finds out.

Section 138 of the Negotiable Instruments Act makes cheque bouncing a criminal offence with imprisonment up to two years or fine which may extend to twice the cheque amount or both.

Until recently, the existent precedent on Section 138 was the SC’s landmark judgment by a 2 judge bench in the case of Bhaskaran. In 1999, this judgment laid down that the following 5 acts linked together will qualify as an offence under Section 138; namely

1. Drawing of the cheque 2. Presentation of the cheque to the bank 3. Returning the cheque unpaid by the drawee bank 4. Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount 5. Failure of the drawer to make payment within 15 days of the receipt of the notice.

The judgment laid down that any court within whose jurisdiction any of these 5 acts are committed will have the jurisdiction to hear the case.

Tushad CooperAdvocate, Bombay HC“The impact of Bhaskaran was that it gave a great fillip to complainants who were holding cheques which had bounced owing to litigants dishonestly handing over such cheques and in my view, it was fully in conformity with the intent of the legislature which was brought in 1998-89 to encourage the use of cheques in commercial transactions.”

Aman LekhiSenior Advocate, Supreme Court “Bhaskaran’s case did require reconsideration because it was too open-winded to actually work as a precedent and facilitate effective prosecution under Section 138 because of the sheer number of options it gave to a person instituting the proceedings. It did not appropriately consider the options of the CrPC in so far as the place for institutional proceedings are concerned and in my opinion, rather incorrectly, telescoped into the criminal law aspects of civil law and parts of cause of action. So there was a need and occasion to reconsider Bhaskaran.”

Recently, in the Dashrath Rathod case, a 3 judge bench of Supreme Court had another opportunity to decide which court will have the jurisdiction to hear a dishonor of cheque case. The bench noted that the precedent that Bhaskaran set led to manipulative abuse of territorial jurisdiction.

And so, the 3 judge bench overturned the Bhaskaran precedent.

The Supreme Court relied on Section 178 of the Criminal Procedure Code to say that territorial jurisdiction in criminal matters lies solely at the location where the offence is committed. It noted that an offence under Section 138 will take place if the drawee bank returns the cheque unpaid and the court where this bank is located and the cheque is dishonored will have the jurisdiction to hear the case.

Aman LekhiSenior Advocate, Supreme Court “The SC notices that the purpose of this enactment i.e. Section 138 was to give efficacy to cheques because the mischief that was sought to be addressed was the practice of issuing cheques without any responsibility and the payee was not getting the money. Now that was the objective. Now when you interpret the statute, you have to interpret it keeping the objective in mind so that you don’t frustrate the purpose. The peculiar remedy which the SC has given requires the payee to follow the drawer and institute proceedings where the drawer’s bank is situated which renders the proceedings onerous.”

Tushad CooperAdvocate, Bombay HC“In this case, cheques will be issued by a debtor from a remote jurisdiction and thereafter compel the complainant or the creditor to move to the remote jurisdiction in order to assert his right. The answer given the judgment is that it is always open to the complainant to take recourse to the regular Indian Penal Code for cheating if the person can establish that the cheque was given with a dishonest intent to cheat. But that according to me would not be fair. The intent of the legislature embodying Section 138 was precisely to give a complainant an additional remedy and not leave the complainant to the sole recourse of the IPC. By arguing that he has recourse under IPC and doesn’t deserve further remedy under the negotiable instruments act in my view would not be correct.”

The judgment impacts not just prospective but pending cases as well. The Supreme Court has said that in cases where evidence has been recorded, the same court can continue to hear the case. For others cases, including ones where the accused had not been given proper notice, the complaint would have to be heard by the court where the offence took place. Experts say that is a recipe for further confusion and prolonged litigation! Looks like the cheque dishonor case clogging that has the apex court worried is not clearing up anytime soon.